BILL ANALYSIS                                                                                                                                                                                                    

                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair

                                           1106 (Fuentes)
          Hearing Date:  08/12/2010           Amended: 08/03/2010
          Consultant: Mark McKenzie       Policy Vote: T&H 8-1
          BILL SUMMARY:  AB 1106, an urgency measure, would authorize the  
          California Energy Commission (CEC) to contract with small  
          business financial development corporations (FDCs) to expend  
          funds made available for the Alternative and Renewable Fuel and  
          Vehicle Technology Program, if the expenditure is consistent  
          with the program's requirements.
                            Fiscal Impact (in thousands)

           Major Provisions         2010-11      2011-12       2012-13     Fund
           BT&H administration    up to $50, minor ongoing special fund  
          costs                  General*
          CEC design program     up to $50, ongoing costs are  

          FDC administration     costs would depend on amounts  
                                  to FDCs, and could be in the range of  
                                     ----------see staff  

          Loan Guarantees        unknown potential redirection of funds  
                                 FDCs for loan guarantees that would 
                                 otherwise be used for other projects.
          * Alternative and Renewable Fuel and Vehicle Technology Fund

          STAFF COMMENTS: This bill meets the criteria for referral to the  
          Suspense File.
          AB 118 (N??ez), Chapter 750 of 2007, created the Alternative and  
          Renewable Fuel and Vehicle Technology Program, which the CEC  


          administers to provide grants, revolving loans, loan guarantees,  
          loans, or other appropriate funding measures to public agencies,  
          vehicle consortia, businesses, consumers, recreational boaters,  
          and academic institutions to develop and deploy innovative  
          technologies that transform California fuel and vehicle types to  
          help attain the state's climate change policies.  The program is  
          funded through a variety of fees, including smog abatement fees,  
          vehicle fees, license plate fees, and boat registration fees,  
          which provide over $100 million annually through 2015.  The CEC,  
          through a competitive process, allocates these funds to  
          alternative fuel and vehicle technology projects.  To set  
          priorities for the allocation of funds, the CEC must develop an  
          investment plan in consultation with a wide array of  
          stakeholders.  The CEC adopted its first investment plan at its  
          April 22, 2009 meeting, which included allocations of $176  
          million, and is now in the process of updating the plan for  
          2010-11, which includes proposed allocations of approximately  
          $108 million.  Existing law authorizes the CEC is to contract  
          with the State Treasurer's Office (STO) until January 1, 2012 to  
          expend program funds as long as those expenditures are  
          consistent with program requirements.
          Page 2
          AB 1106 (Fuentes)

          AB 1106 would also authorize CEC to contract with FDCs  
          established by the Business, Transportation and Housing Agency  
          (BT&H) to expend program funds through the Small Business Loan  
          Guarantee Program, as long as expenditures are consistent with  
          program requirements.

          State law authorizes BT&H under its Small Business Loan  
          Guarantee Program to establish small business FDCs that provide  
          guarantees for loans that private financial institutions issue  
          to small businesses.  Under the program, loan guarantees cover a  
          percentage, typically 80 percent, of the loan balance and  
          interest upon defaults and provide security to banks for  
          investments that banks may not otherwise issue.  BT&H has  
          designate 11 non profit FDCs that operate in the state to market  
          and coordinate the packaging of the loan and loan guarantee  
          applications between the small business and financial  
          institution, issue the loan guarantees, and ensure that lenders  
          have followed required procedures before requesting payment on  
          defaulted loans.  The loan guarantee program has historically  
          been funded by General Fund appropriations, but these resources  
          have been severely cut back in recent years due to the state's  
          fiscal crisis.  The program is likely to receive approximately  


          $1.7 million in General Fund revenues in 2010-11.

          This bill would expand the opportunities for CEC to partner with  
          other entities in the allocation of AB 118 funds, providing  
          another avenue for implementing projects and activities  
          identified in the Financing Plan of the Alternative and  
          Renewable Fuel and Vehicle Technology Program.  While AB 1106  
          does not require CEC to contract with FDCs and supplant other  
          efforts, the bill could represent a redirection of funds to FDCs  
          that would otherwise be used for other eligible projects.  The  
          CEC indicates that expanding financing options may allow for  
          program efficiencies.

          Prior to contracting with FDCs, the CEC would need to dedicate  
          extensive time to coordinate with BT&H staff to design a program  
          and determine which projects in the Financing Plan would be most  
          suited for financing through an FDC.  CEC indicates these  
          coordination duties would be absorbable, but also recognized  
          that the staff time involved would be substantial on the front  
          end, similar to coordination efforts with the STO.  Staff  
          estimates this could be the equivalent of  PY of CEC staff time  
          at a cost of approximately $50,000, as well as an equivalent  
          amount of staff work at BT&H.

          It is unknown whether administrative costs associated with  
          financing projects through FDCs would be higher or lower than  
          financing projects through the STO or administering projects  
          directly through the CEC.  The Financing Plan indicates that CEC  
          would fund up to two percent of total annual allocations for  
          administering the program.  Financing projects through the FDC  
          program may increase administrative expenditures. 

          Financing projects through contracts administered by FDCs would  
          require some administrative oversight by BT&H staff, as well as  
          local assistance provided directly to FDCs to market and  
          administer loan guarantees.  Actual costs would depend upon the  
          amount of resources provided by the CEC for FDC loan guarantees  
          and the demand for loans.  Staff estimates that if $10 million  
          were made available for FDC loan guarantees, up to $500,000 may  
          be dedicated to BT&H and FDC administrative costs.